Lender's collapse could create retail chaos

NEW YORK --- The possible collapse of a key lender is sending panic through the retail industry, threatening to hang up deliveries of back-to-school clothing and other merchandise and throw holiday ordering into disarray.

A bankruptcy filing by CIT Group would hurl more trouble at an industry already hammered by the worst spending slump in decades.

The ripple effect could be as simple as a zipper maker that can't rely on CIT to advance payment for orders. That would then hurt trucking companies that would ship the zippers and overseas factories that need the zippers to make dresses. The result could be mounds of zipperless dresses at factories, piles of goods sitting on docks -- and products not making it to stores.

"CIT is like an octopus with its tentacles that reach out to so many industries and sub-industries," said Jeffrey Knopman, a principal at Profit Solutions Group, which helps suppliers recover chargeback money from merchants.

A primary business of CIT is short-term financing, mostly to small- to medium-size businesses that can't afford to wait the 60 to 90 days it takes to get paid for shipments to retailers.

This business, known as "factoring," also guarantees suppliers get paid by the merchants. Without that guarantee, suppliers would have to ship goods at their own risk.

Industry trade groups have increased their pitch to lawmakers to prevent the collapse of CIT.

New York-based CIT serves as a factor for about 2,000 vendors that supply merchandise to 300,000 stores, according to Craig Shearman, the spokesman for the National Retail Federation.

Analysts say 60 percent of the apparel industry depends on CIT for financing, so other lenders taking up all the slack would pose a big financial strain.

CIT is in talks with JPMorgan Chase & Co., Goldman Sachs and Morgan Stanley about securing short-term financing that might help it avoid filing for bankruptcy, a person familiar with the talks said Friday on condition of anonymity.